One of Justin Trudeau’s big campaign promises was to dial back the annual TFSA contribution limit from $10,000 to $5,500 in a nod to middle-class voters. It played well with the media but advisors of all political stripes were seriously annoyed by the Liberal leader’s rhetoric because the move actually does the opposite.
Glen Rankin, a Nova Scotia advisor with Assante Financial Management, believes the 45% reduction in the annual contribution limit definitely hits at the middle class; here’s why.
“If I’m a senior I’m retired and I’m relying on government benefits, maybe I even qualify for a guaranteed income supplement; or I might have had an inheritance from my parents; or I might have just been very frugal and saved a lot of money. A lot of the people I’m seeing are moving money from existing non-registered into TFSAs,” said Rankin. “It’s not all new money for rich people It’s middle-income people, many of them seniors, that are moving money from their left hand to their right hand to make it more tax efficient.”
A second problem is more general in nature and less to do with a specific income bracket. Rankin believes there’s a long-term effect with rolling back the TFSA limits.
‘This is partly a political conversation and partly a logical one,” Rankin told WP. “I did some loose math on the proposed change to the TFSA limits from $10,000 to $5,500. Based on the last 15 years of CPI and based on the way the formula used to work, it’s going to be the year 2047 before we get back to $10,000. So, you’re talking about 32 years to get back to where it was.”
In this advisor’s opinion the argument about the TFSA being a savings vehicle only for the rich is a big red herring.
“If I’m a multi-millionaire do you think $41,000 in the TFSA makes any difference to me?” said Rankin. “It’s not hitting the right people. The changes to TFSA limits are going to marginally hurt middle-class people more than it’s going to hurt the wealthy.”